PROVIDENCE – Once again, unusual items boosted Lifespan Corp’s operating income to $4.6 million in the second quarter of 2024 ending March 30, according to unaudited financial documents released Wednesday.
This marks improvement over last year’s $3.7 million loss and comes after Lifespan posted a $55.4 million operating income in the first quarter 2024, largely propped up by out-of-period and one-time, or unusual, items.
These unusual items included:
- $27.8 million in Federal Emergency Management Agency funds throughout the first two quarters of fiscal year 2024, compared with $9.7 million in the same period last year.
- $34.8 million in patient service revenue related to the final 340(b) settlement, which the Centers for Medicare & Medicaid Services issued a ruling for on Nov. 2 along with an overview of a remedy process. To neutralize the budget, CMS plans to decrease non-drug service payments by 0.5% beginning in 2026 and ending around 16 months when the full offset happens.
- $8.6 million from a change in the Disproportionate Share Model that affected last year. In December, CMS approved Rhode Island’s submission for Medicaid-managed state-directed payments, which was meant to replace the previous disproportionate share model and boost Lifespan’s revenue. The new Medicaid payments are retroactive to July 1, 2023.
Without these unusual items, Lifespan would have reported a $11.2 million operating loss through the first two quarters of 2024, compared with a $16.9 million loss in the same period last year, according to the report.
While the one-time items boosted Lifespan’s operating income, the health system is still not hitting its financial goals, Peter Markell, executive vice president and chief financial officer said Thursday.
Markell had previously said he hoped Lifespan would reach a 3% operating margin in 2024, but that is likely not going to happen. Among the challenges Markell identified were: the acuity level or case mix for inpatient discharges, uncompensated care and denials, losses on risk-based contracts, labor spending as well as medical and surgical supplies and drug expenses.
“[The quarter] not where we want it to be,” Markell said. “...Those are the five things driving where we are and the five things we’re focused on.”
Lifespan also reported a $27.6 million net income for the quarter, compared with a $15.2 million in the same period last year.
Patient service revenue grew 11.2% from $636.1 million last year to $707.2 million in the most recent quarter. This was mainly because of a 7.4% rise in discharges that led to $36.6 million increase over last year as well as changes in payor mix and rates that added a net of $13.5 million.
Lifespan recorded $44.5 million in Medicaid directed payments and $31.3 million in license fees, compared with $17.6 million in disproportionate share revenue and $25.7 million in license fees during the same period last year. With the Medicaid directed payment model Lifespan expects to receive around $37.8 million annually, compared with paying a net of $25.1 million in the last fiscal year.
The state disproportionate share revenue also rose $26.9 million year-over-year. This includes charity care and the provision for bad debts that rose a total of $5.9 million. Other revenues increased 9.8% or $7.8 million, from $79.9 million last year to $87.7 million in the most recent quarter. Management noted this was driven by a $4.1 million increase in the Lifespan Retail and Contract Pharmacies.
Lifespan’s operating expenses also rose by 9.5% to $841.4 million in the most recent quarter from $768.4 million in the same period last year. Like last quarter, Lifespan executives said this stems from increased spending on compensation and benefits, supplies and other expenses, as well as license fees.
Lifespan’s spending on compensation and benefits increased by $43.2 million, going from $461.9 million in the second quarter 2023 to $505.1 million in the most recent quarter. This increase was driven by hiring an additional 438 full-time employees that added $12.6 million in expenses. Also, Lifespan added ten full-time contract labor positions while costs decreased $1.9 million because of lower average rates paid compared with the same period last year. Inflation and higher use of self insurance health and dental expenses also increased $8 million in the most recent period compared with last year.
Costs related to supplies and other expenses rose by $18.9 million to $229.2 million from $210.3 million year over year. The increase was partly because of a $5.8 million increase in drug costs from the Lifespan Retail and Contract Pharmacies. A 3.8% increase in surgical volumes and 4.5% rise in adjusted patient stays as well as inflation led all other supply and drug costs to rise by $13.1 million.
License fees also increased 22.1%, going from $25.6 million last year to $31.3 million in the most recent quarter.
Lifespan’s non operating gains were $23 million for the quarter, up from $18.8 million last year.
Net assets rose $56.6 million in the most recent quarter, compared with $38.9 million during the same period last year, largely driven by Lifespan’s improved operating income.
Cash and cash equivalents increased by $63.5 million in the most recent quarter, compared with a $45.1 million increase in the same period last year. The rise in cash and cash equivalents was primarily caused by funds from the one-time items.
Volume levels were stable throughout the quarter compared with last year. Noteworthy changes included a 7.2% rise in discharges over the same period last year and a 3.9% rise in patient days, causing the average length of stay to drop from 6.24 days to 6.05 days. Lifespan also reported 6.7% more inpatient surgeries and 8.4% in emergency department visits.
(UPDATE: Adds comment from Lifespan in 5th, 6th and 7th paragraphs)
Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.
